Stock Splits
A stock split is an increase in the number of shares of a company's outstanding common stock. Since each shareholder's equity cannot be affected by the split, the market price per share is adjusted. For example, if you own 100 shares of XYZ Company at $50 a share, your stock is worth $5,000. If XYZ declares a 2 for 1 split, you will then own 200 shares of stock. The price per share is adjusted to $25 per share, which leaves the total value unchanged ($5,000).Companies generally declare stock splits to reduce the price of their stock to make it more attractive to investors. For example, investors might be more apt to invest in a stock that is priced at $50 a share than one priced at $100 a share.
Stock Dividends
Stock dividends are paid in common shares, and can be used to pay shareholders instead of a cash dividend. For example, if you own 100 shares of a company that declared a 1% stock dividend, you will receive one more share of stock from the company's reserve of shares.If a company needs to tighten its fiscal belt, it may decide to declare a stock dividend rather than a cash dividend. A stock dividend will conserve cash while still allowing shareholders to benefit from the firm's earnings.